Talent Management: Building a Meritocracy Following the integration of a corporate bank and an investment bank, McKinsey was asked to help create a unified culture with incentive programs to attract and retain talent.

BackgroundFollowing the integration of a corporate bank and an investment bank, McKinsey was asked to help create a unified culture. The objective was to design a system that would be able to manage the culture through the economic cycle, attract and retain the talent necessary to being world-class, and take a client-service approach. Evaluation and compensation would be key factors to ensure retention in addition to both value articulation and good governance.

Analysis and TeamworkMcKinsey started by creating a steering committee comprised of members from both the corporate and investment banks. This group met every 4-6 weeks to review findings and achieve resolution on work completed through interviews, competitive assessment and model building.

Special emphasis was placed on the Managing Director electoral process and the development of a compensation philosophy. To this end, the McKinsey team derived goals and designed elements, worked to understand the fundamentals, and used business strategy and competitive analysis to develop a philosophy in line with the institution's culture.

ResultsThe creation of the committee ensured continual reinforcement of senior management values and refinement of supporting processes. The new evaluation process, especially for MD elections, fostered a more meritocratic environment. McKinsey established a compensation structure for the senior members of the firm that included the introduction of an incentive plan linked to the success of the firm as a whole. Greater cross-selling was achieved through revenue-sharing.

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Creating a Leader in Compliance By redesigning the governance infrastructure, McKinsey helped a leading investment bank improve the status and perception of compliance within the organization.

BackgroundA leading investment bank requested that McKinsey help it with a full-blown review and reorganization of its compliance infrastructure. The client was responding to the increased external scrutiny of corporate governance, compliance and potential conflicts of interest on Wall Street.

McKinsey was asked to meet a number of objectives, including examining and refining the client's overall compliance philosophy and strategy in the context of its professional values and reputational excellence. McKinsey was also asked to identify potential changes and improve core compliance processes.

Analysis and TeamworkMcKinsey assessed the client's current position versus existing and emerging best practices based on internal assessment, benchmarking and feedback from other external sources, such as regulators. The internal assessment required about 150 interviews across geographies and product groups on such key measures as the client's philosophy and strategy, organization and governance, processes and hand-offs, as well as the roles of culture and technology. Benchmarking involved a survey developed by the McKinsey team.

The team then synthesized the key gaps for the client versus best practices and recommended initiatives and action plans to close those gaps. These included changes to roles, structures and processes, and additional investment requirements and tracking mechanisms. There were key cultural barriers to overcome.

ResultsMcKinsey redesigned the governance structure, expanding both the domain of compliance and removing the 'siloed' approach of the group. McKinsey helped the client to increase the status and perception of compliance within the organization.

Centralizing People Management After an investment bank found that decentralized decision-making was creating problems, it called in McKinsey to realign its current strategy and management of people.

BackgroundAn investment bank turned to McKinsey after realizing that its decentralized decision-making process, along with fast growth in hot businesses, was creating problems.

First, there was needless and wide variation in the pyramid structure across groups, which increased the cost structure. Compensation and promotion processes were opaque: equal performance was not being equally rewarded; subordinates were being rewarded for short-term performance and personal loyalty; and pay and promotion expectations were unrealistic. Targeted separations were needed, yet involuntary attrition was counter to the bank's traditional 'job for life' culture.

Analysis and TeamworkMcKinsey formed a "Cost Restructuring Project Committee" of 12 senior bankers who committed 20-25% of their time for the duration of the undertaking. After an off-site inaugural meeting held to define a common set of objectives, the committee debated problems and issues, including: recruiting, evaluation, compensation, promotions, career counseling, transfers, and attrition. Profiles of how competitors approached some of these issues were reviewed.

McKinsey helped design a partnership model that re-centralized people management through cross-functional committees. The model addressed various levers for increasing productivity: leverage/staffing, an optimized mix of junior to senior staff, utilization, compensation and HR systems.

ResultsStaffing productivity measures resulted in an estimated 20-25% savings for Mergers & Acquisitions. McKinsey helped maximize productive use of professional time by using a new time-tracking tool. After the reorganization, compensation became an accurate reflection of value delivered, and HR processes were integrated.

Creating Organizational Change for a Fixed-Income Division By launching a strategy for organizational change for a fixed-income, commodities and foreign-exchange division, McKinsey helped the client improve the bottom line.

BackgroundMcKinsey was asked to create and launch a high-level strategy for creating organizational change for a fixed-income, commodities and foreign-exchange division. The client had been unable to prioritize which products were most critical to the bottom line given constrained resources.

Navigation across various product silos and between Debt Capital Markets (DCM) and investment banking was difficult, resulting in clients receiving mixed messages from relationship managers.

Analysis and TeamworkDuring phase 1, the McKinsey team conducted over 100 internal interviews and created fact pacts for each product, including past performance, key competitors, expected trends and optimal client base.

During phase 2, the team held full-day workshops that covered the prioritization of products and clients in the U.S., the development of European and Asian operating models, and the integration of DCM and investment banking.

Pulling all this information together, the team helped reorganize the divisional structure from 20 separate product silos to three. It integrated DCM with origination and provided a roadmap, including an outline of rules and responsibilities, a framework on how to serve clients more effectively, and a decision to focus on the top 100/specialized clients and complicated cross-product deals.

ResultsAfter implementing McKinsey's program, the client expected continued growth of 15-20% a year and improvement of the bottom line.

Sector Prioritization McKinsey countered a leading regional bank's decline in wholesale banking margins with a plan to reallocate human and financial capital more effectively to boost returns.

BackgroundA leading regional bank's wholesale banking margins were declining amid reduced overall capital-markets activity. At the same time, its customers' needs were becoming increasingly sophisticated. The firm asked McKinsey to assess the situation and help devise a new strategy to reallocate its human and financial capital more efficiently and effectively to improve returns and productivity. The client was interested in greater certainty of near-term earnings.

Analysis and TeamworkThe McKinsey team began by benchmarking competitive performance by sector to establish the drivers of variation in productivity and high-priority focus areas. The team built a factual foundation and future projections and then, assessed opportunities and defined high-level aspirations by sector. The team determined that while a broad set of product capabilities existed, targeted client segments were unclear. A shift in focus from revenue to total relationship was required.

As a result of the team's analysis, it developed a refined product strategy, coverage model and credit-portfolio management approach. The McKinsey strategy prioritized human and financial investment across sectors, penetrating high-growth industry sectors and exiting low-growth areas.

ResultsBy adopting the new plan, the client saw a 20-30% near-term rise in revenue incremental to market-driven increases and a significant near-term improvement in risk-adjusted return on capital economic profit. Accompanying these gains: a significant near-term decrease in total origination coverage expenses; a 10-20% medium-term reduction in economic capital deployed; and a 15-20% near-term decrease in total research expenses. In addition, the client captured a 15-30% increase in the cross-sales of fee-based products and a 10-20% near-term increase in "adjacent" products revenues.

BackgroundThe client sought help from McKinsey in coordinating the relationship of its middle-market line of business with its risk-management group. This association was characterized by ineffective and inappropriate commercial-credit decisions, portfolio-tracking methods and metrics. Loan charge-offs exceeded normal expectations, and our client made little or no economic profit on significant portions of its middle-market credit portfolio after full-loading all costs.

Analysis and TeamworkMcKinsey began by examining the client's loan portfolio to determine sources and concentrations of risk. This required analyzing the pipeline to gauge the credit outlook and determining the organization's appetite for risk along each dimension. McKinsey then detailed the end-to-end process across sites including time, cost and quality. To accomplish this, the team identified sources of variation, modeled the end-to-end economics, established appropriate trade-offs, and mapped roles and responsibilities.

The next step was to benchmark the client's competitive position and customer requirements by assessing current performance and that of likely market entrants.

McKinsey synthesized its results and developed recommendations that identified opportunities to reduce risk and/or costs and enhance customer satisfaction. McKinsey also clarified roles and responsibilities between the middle-market line of business and the risk group.

ResultsMcKinsey's plan established a risk strategy and management framework that was integrated with the client's overall strategic business objectives. McKinsey helped the client streamline the credit process, resulting in an expected loss reduction of $15M in the first year. The client's improved focus on origination quality and reduced charge-offs was expected to boost return on capital by 3% over three years.

BackgroundAn investment bank turned to McKinsey to help its institutional fixed-income sales force become more effective. The client had no structured account planning for fixed income and various product groups acted like silos with little interaction between them.

Analysis and TeamworkMcKinsey started by detailing the institutional sales models, processes and strategies of top competitors. The team conducted more than 100 coverage-model interviews with other banks on such topics as: how to sell and to whom (account prioritization); silo vs. cross-sell alignment; sales organization including reporting lines and regional considerations; and leveraging of credit synergies. The team then benchmarked against these results.

McKinsey created a new organizational and coverage model for the client's fixed-income sales force with an implementation and transition plan. The model aligned the sales-force organization to a more customer-centric structure that more accurately reflected the portfolio-manager set up. The program resulted in the shifting of staff and some new hires.

The McKinsey team created an implementation strategy in syndication. About 90% of this plan was implemented in three months.

Identifying Sharing Opportunities Across Business Units McKinsey's development of a re-engineering, consolidation and offshoring program created savings starting at US$100 million for a leading emerging-markets bank with operations in 40 countries.

BackgroundA leading emerging-markets bank with 600 corporate- and retail-banking branches in 40 countries, including operations in Asia, Africa, the Middle East and Latin America, brought McKinsey in to develop an IT strategy and to design a global technology and operations operating model. Another part of McKinsey's mandate was to develop an operations strategy for both the corporate and retail units with drives for aggressive cost reduction through re-engineering, consolidation and offshoring.

McKinsey needed to balance the need for autonomy on technology and operations decisions at a country and/or business-unit level with the need for standardization and economies of scale across the group.

Analysis and TeamworkThe McKinsey team began by assessing competitive strategy and by analyzing key risks and challenges. The team then developed an entry strategy, an organizational structure and a skill requirement matrix.

As part of the new organization and operating model, the team set up a global technology and operations committee to bring these functions under common leadership. McKinsey also created a business-technology management organization with 25 managers to liaise between business and IT. A senior board member with a business background was appointed chief information officer.

As to outsourcing and offshoring, the team screened and selected two key Indian systems integrators for software development and maintenance, decided to outsource credit-card systems and business processing, and set up in-house offshore centers in India, China and Malaysia.

ResultsThe McKinsey program captured short-term savings of US$100 million through technology and operations, and US$20-20 million of savings through new operations-improvement initiatives.

Establishing a Corporate Risk Management Program A large U.S. financial institution brought in McKinsey to establish a risk management program that appointed a chief risk officer and established a clear risk infrastructure.

BackgroundThe CEO and board of a large U.S. financial institution turned to McKinsey to help the institution with its number-one agenda item - risk management - after the company lost several million dollars in its high-yield portfolio and was given a negative outlook by the ratings agencies and analysts. McKinsey decided there was limited risk transparency at the corporate level, in part due to a lack of corporate risk oversight.

Analysis and TeamworkMcKinsey first developed a 'heat map' to create corporate-level risk transparency. The team then established a corporate risk management function and began implementation of required corporate-level processes. It explicitly defined the overall level of the corporate risk function. McKinsey also developed next-generation risk reporting, which more precise heat maps, with a monthly production capability, among other elements (This sentence doesn't make sense to me). The team also launched 'deep dives' to drill down on key risk concentrations across the enterprise.

ResultsThe McKinsey plan created a "one-enterprise view" on risk at the CEO/senior-executive level. A chief risk officer was appointed and a corporate risk management infrastructure with clear responsibilities was established. The team redefined strategic asset allocation of the investment portfolio, and upgraded investment processes and risk-management skills.

Improving Marketing-Spend Effectiveness to Improve Customer Acquisition By refining customer segmentation and improving the marketing planning process, McKinsey helped a leading securities player to cut its marketing budget while improving spending effectiveness.

BackgroundA leading securities player had seen little improvement in customer acquisition despite more than doubling its marketing budget. The CEO asked McKinsey to improve its spending effectiveness and help it to market more strategically.

The client wanted to identify bottlenecks to brand growth, marketing-dollar reallocation and marketing alignment with customers. The client asked McKinsey to develop recommendations on vehicles, messaging and spending through a finer customer segmentation. The client also wanted to develop a better planning process and assess correct spending levels for each customer type.

Analysis and TeamworkIn the first phase, the McKinsey team conducted 500 interviews to analyze customer segmentation and acquisition, assess conversion rates and develop a needs-based segmentation. It then allocated marketing dollars to improve customer awareness, consideration and trial of the client's products. The team reorganized marketing around the customer funnel.

In phase two, McKinsey conducted further research around an additional 50 attributes and repositioned the brand from mass market to one focused on the targeted "rugged-individualist/self-reliant investor" segment. To facilitate better planning, McKinsey developed a cookbook with selection criteria to narrow the number of sustaining and high-opportunity markets for investment. McKinsey worked with a media-planning agency to decide markets, vehicles and the requisite spending levels to close gaps.

ResultsThe client made all recommended changes, including rolling out a new brand positioning, installing a new marketing organization, implementing performance metrics and differentiating the planning process. The client reduced the marketing budget to $70-80 million from $100 million by improving the efficiency and effectiveness of its advertising investment.

Scoping Opportunity in Commercial Finance A non-U.S. banking client sought McKinsey's help in integrating its newly-acquired, U.S. specialty finance business and followed McKinsey's strategy to launch two products in the U.S.

BackgroundA non-U.S. banking client sought McKinsey's strategic advice in integrating its newly acquired specialty-finance business based in the U.S. Lacking a U.S. presence, the client wanted McKinsey's perspective on the attractiveness of the U.S. specialty-finance market across distinct product lines and on the opportunities to leverage existing resources and capabilities in entering those markets.

Analysis and TeamworkMcKinsey started by performing a high-level opportunity scan of the acquired company's products. This included gauging the size of the revenue pool and its profitability, evaluating the market positioning and competitive environment, and appraising the strategic fit with the client's overall objectives.

The team followed up with "deep dives" into select products to assess the attractiveness of the acquisition. It examined such areas as market potential, economics, competition and target customers. The team also performed a feasibility analysis based on matching the client's skills and capabilities with the requirements of the product.

ResultsThe client implemented McKinsey's recommended strategy, launching two products in the U.S., one being entirely new. The client also based its forward budgets on economic models prepared by the team and leveraged McKinsey's 'cold-call' lists to garner business.

Offshoring for a Global Wholesale Bank A global investment bank reached out to McKinsey in order to create new offshoring opportunities and increase the offshoring levels of their technology group.

BackgroundThe technology group supporting the fixed income/derivatives businesses for a global investment bank brought in McKinsey to identify ways to increase offshoring to more than 40% across the unit from the current level of 25%. The team was given a 14-week deadline.

Analysis and TeamworkMcKinsey first developed a rigorous methodology that applied to each line of business to identify full-time equivalents that could potentially be taken offshore. The team also developed a detailed business case for the moves.

At the same time, McKinsey used market analysis to identify vendors to receive the requests for proposals that written and issued by the team. A vendor evaluation model was developed, and the team evaluated responses and selected vendors for a detailed due-diligence trip. After the detailed due-diligence was conducted, the team suggested a second preferred vendor for the client, different from the one already being used. The client selected the recommendation.

McKinsey also created a detailed change-management strategy and plan for the organization, which included defining the role of the group in driving offshoring, setting group-wide offshoring standards, defining a new vendor-engagement model, and redefining performance-management metrics.

ResultsThe program created an offshoring opportunity equal to 52% of all headcount open to capture within nine months - resulting in about a 15% reduction in costs (or more than 20 million euros). Vendor rationalization and changes to the onshore shared-services operating model offers stretch potential of another 10% or so reduction in costs, or more than 15 million euros.

Setting a Strategic Blueprint for Global Equities Trading McKinsey's initiatives created $300 million-plus in revenue boosts through internalization and superior market-making for a global investment bank.

BackgroundThe global equities division head of a global investment bank with an industry-leading cash equities and derivatives business requested McKinsey's help in creating an end-to-end, integrated electronic-trading platform that would fully monetize all equity-trading flows.

The client used multiple client-access methods with a high percentage of phone-based orders. The quote-construction and maintenance processes were highly manual. Liquid retail order flow was immediately piped out for external execution, and orders were routed exclusively to the dominant exchange for each product. Not only was internal connectivity limited with related desks but also there were multiple risk-position systems.

Analysis and TeamworkFollowing interviews with business owners, functional counterparts and external experts, McKinsey designed an end-state trade-flow blueprint and identified, quantified, and prioritized functionality gaps. The team screened potential vendors and assessed build/buy options. They then made business cases for each major initiative.

The plan's initiatives included client electronic connnectivity, auto-quoting for market-making, an internalization engine for small orders in selected markets, internal cross-product linkages, intelligent external order routing, and risk-position management.

ResultsThe McKinsey blueprint created $300 million plus in new revenue through internalization and superior market-making. The investment in sequenced, modular systems paid back within 18 months for most modules.

Streamlining Clearing and Settlement Activities In restructuring the IT organization of one of the world's largest financial institutions with operations on all continents, McKinsey identified $650 million in cost savings.

BackgroundOne of the world's largest financial institutions with operations on all continents wanted to improve the cost efficiency, service excellence and financial transparency of its IT management of infrastructure with regard to clearing and settlement activities across multiple business lines. It called in McKinsey to define the operating model required globally and to implement the new organization quickly so that economic benefits could be recognized in an accelerated timeframe.

Analysis and TeamworkThe McKinsey team compared the economic potential of different organizational models and assessed servicing potential. The team created an organizational baseline by inventorying full-time equivalents and costs across lines of businesses and geographies. It then developed unit-cost metrics. These efforts were augmented with benchmarking against best practices, and a core-competency analysis which ascertained the economic-value potential of IT sourcing.

The entire IT organization was restructured in three months under the model recommended by McKinsey. The team consolidated multiple organizations, rationalized duplicate groups and standardized technology and service levels. New roles were defined and refined in an ongoing process through workshops. Staff reductions were announced for redundant jobs, and sourcing RFPs were released.

ResultsMcKinsey identified for its client $650 million in cost savings on a base of more than $3 billion. Some $200 million of these savings were captured in the first full year. McKinsey also created a new global organization of over 10,000 full-time equivalents.

BackgroundAn investment bank wanted McKinsey to translate an aspirational IT strategy into operational measures. At the same time, the client wanted McKinsey to identify cost savings through increased operational efficiency.

Analysis and TeamworkThe McKinsey team started by turning the high-level strategy into a working model. The team developed a leading-edge model for IT component reuse encompassing knowledge, source code, applications, systems and business operations. It also redesigned the application support model, and identified IT cost-saving opportunities.

ResultsMcKinsey's revised IT strategy was accepted by the business and IT, including a new model calling for the reuse of IT components and a revised IT support model. The team's suggested budget reductions were also successfully applied.

Capturing Efficiency Opportunities in Shared Back Office and Technology Groups McKinsey helped a leading global investment bank implement a large-scale Y2K program in Asia ahead of schedule and achieve regulatory milestones.

BackgroundA leading global investment bank turned to McKinsey to implement a large-scale Y2K program in Asia. The project had seven major streams of work: applications remediation, infrastructure certification, end-user computing, internal testing, external compliance, document repository, and industry testing. The client had separate program office resources in each market and over 1,300 applications. Over 500 full-time equivalents were involved in the program.

Analysis and TeamworkThe McKinsey team of three consultants, leading 75 full-time equivalents client personnel over 12 months, used a steering-committee process and intense communication with local businesses, IT, and global and local senior management to enhance regional program management. The team also strengthened the link to the global program office.

A regional user-testing group was set up. McKinsey coordinated industry testing in Japan in the areas of testing scope and requirements, responses to inquiry, and test-team deployment. The team then designed and launched risk-management and contingency-planning processes, including methodologies and guidelines, process-management support, and progress tracking and reporting.

ResultsMcKinsey delivered its program on time and on budget after remediating more than 400 local applications. The McKinsey team helped the client move from being behind on meeting industry deadlines to being ahead of schedule. The team also helped the client achieve significant regulatory milestones.

Improving Risk Management Program McKinsey reorganized and improved a top 20 U.S. bank's risk management processes after the bank ran into trouble with regulators over its risk practices.

BackgroundA top 20 U.S. bank required McKinsey's help improving the bank's risk management practices after regulators forced the bank to recharacterize several off-balance-sheet transactions, resulting in an earnings restatement of more than $150 million. The stock initially dropped 10%. Then, after the Federal Reserve Board and the Office of the Comptroller of the Currency put the bank under watch, the stock dropped another 15%.

Analysis and TeamworkUnder Phase 1 of the risk management improvement program, McKinsey created a corporate risk management organization, performed risk diagnostics, and developed an action plan to close the gap to best practice.

Phase 2 involved a number of crucial steps. McKinsey implemented the organization and new governance structures, which included the board level. McKinsey also increased risk transparency through improved reporting measurement and reviews. Importantly, the client's corporate-risk appetite was defined and aligned with business-unit strategies. At the same time, McKinsey created a new credit-portfolio-management function, aligned compensation with the risk program, redesigned risk policies for such things as significant transaction approval, and revamped the management-board interaction process.

ResultsFollowing the implementation of McKinsey's plan, regulators declared the bank "well managed," and the CEO acknowledged McKinsey's contributions in the annual report. Wachtell Lipton also cited the bank as an example of risk management best practices.

Redesigning The Equities Model A leading universal bank expected margin improvement of 20-25% as a result of implementing McKinsey's new, global equities strategy.

BackgroundA leading universal bank asked McKinsey' to help define a global equities strategy. The client was not a strong player in this business and lacked an outside perspective on what its clients wanted in this area.

Analysis and TeamworkMcKinsey first identified structural- versus cyclical-market trends for origination, cash equities trading, research, convertible bonds and derivatives. Next, McKinsey determined the client's position in the marketplace by using internal and external data and by conducting client interviews.

The team then outlined strategic options and gained consensus on a strategic model, including such issues as the optimum size of and investment in the business, the appropriate customer focus and coverage model, the right products and linkages between equities and corporate banking products, and the most opportune geographical focus.

ResultsThe client expected to improve margins by 20-25% through the McKinsey program. This included a implementing a multitude of our initiatives across cash trading and origination, reinvesting savings into lucrative higher-margin businesses such as derivatives and convertibles, restructuring the sales organization, and developing a less expensive way to conduct and deliver research.

Improving the Bottom Line across Front, Middle and Back Offices McKinsey identified large savings and over $100 million in revenue opportunities for a U.S.-focused investment bank active in both debt and equity capital markets.

BackgroundA U.S.-focused investment bank, active in both debt and equity capital markets but with a particular strength in sales and trading, asked McKinsey to develop a program to improve earnings. Despite its long history of cost control, the client wanted to boost its ROE by improving cost effectiveness by 15-20% and to identify and implement quick wins, while minimizing IT investment.

The client had limited budgeting and measurement systems, a strong silo-based organization with limited centralized control, and minimal resources available for long-term strategic planning.

Analysis and TeamworkAfter a three-month diagnostic identified improvement opportunities, McKinsey designed a program to meet the client's objectives. With the full support of the chief operating officer and senior leadership group, McKinsey formed a senior steering committee to review progress, approve ideas and implement findings. In addition, the team set high-profile project leaders to head task forces.

Under the program, the IT organization was rearchitectured, procurement policies changed, middle and back offices reengineered, the finance function and equities research redesigned, brokerage pricing altered, and a fixed-income sales-stimulation effort launched.

The team automated manual activities such as account opening and dividend claim distribution, created a single point of data entry for new accounts, and eliminated duplicate activities. The realigned organization consolidated fragmented groups and systems across products and locations for specific functions.

ResultsMcKinsey created firm-wide savings of $250 million and identified over $100 million in revenue opportunities, both of which were to be captured over 12-18 months. McKinsey also identified savings of 17% of the cost base over three years.

Ensuring a Bank's Survival

A major wholesale bank engaged McKinsey to review one of its core technology platforms and develop recommendations to ensure that platform's stability.

BackgroundLarge banks spend a billion dollars or more annually on technology. In a sales and trading environment, a bank's technology infrastructure is the business. For them "99.999 percent availability" means the system could be down for as little as five minutes a year - unacceptable for a global business that trades 24 hours a day and where a minute of lost trades could mean millions in lost revenue, not to mention the impact on its reputation that can wipe out its entire business overnight.

Analysis and TeamworkOur client, a major wholesale bank, engaged McKinsey to help conduct a thorough review of one of its core platforms. Coming out of this review, the team developed a set of organizational, technical, and process recommendations to ensure the platform's stability.

ResultsOur role did not end there. The client asked the McKinsey team to remain in place and support the initial execution of our recommendations.

Our team had an additional role - to help build the capabilities within the client organization to oversee the project implementation going forward. The client team is now fully responsible for monitoring the progress against the plan, and McKinsey periodically helps review the progress.